Study Raps Private Downpayment Aid

Private downpayment-assistance programs generally lead to lower-quality Federal Housing Administration loans with inflated property values and higher defaults, according to a study commissioned by the Department of Housing and Urban Development."The report concludes that seller-funded downpayment assistance has led to underwriting problems that require immediate attention," HUD said in response to the March 1 study by Concentrance Consulting. Rep. Patrick Tiberi, R-Ohio, and David Scott, D-Ga., have introduced a bill that would allow the FHA to offer a zero-downpayment product that could be a safer alternative to PDA programs. At a congressional hearing, Rep. Tiberi said he introduced his bill to allow the FHA to pilot its own zero-down program because he is concerned about problems associated with private PDA programs. In a statement submitted to the House Financial Services subcommittee on housing, FHA Commissioner Brian Montgomery said, "The new zero-down program would offer all creditworthy but cash-poor working individuals and families the FHA advantage -- a safe deal at a fair price." The Washington-based consulting firm recommended that HUD take several actions to mitigate the risk of PDA programs, including implementing its own zero-down program.